ISP expansion view offsets losses

Plus: Baltimore deal; 365 and SAP; Web TV

By

LizaRoberts

LONDON (CBS.MW) -- Two of Europe’s biggest Internet service providers said Thursday they racked up sizable first-half losses, thanks to marketing and acquisition costs.

But despite the marketplace’s increasing focus on the bottom line, shares of Germany’s T-Online (DE: 555770)See story and Italy’s Tiscali weren’t hurt by that news. Indeed, both issues jumped. See story

Why? One reason may be that T-Online is going ahead with further expansion plans, raising investor hopes the German ISP will play a dominant role as the European Internet market matures. The U.K.’s Freeserve (UK:FRE) jumped 11 percent on speculation it’s back on the T-Online shopping list. See MarketPulse

As for Tiscali, investors cheered the fact that revenue soared 644 percent to 52.7 million euros in the first half of the year.

Both pieces of news more than made up for the losses the fast-growing businesses logged -- 14.8 million euros at Tiscali for the first half, vs. 1.3 million euros the year before; 179 million euros at T-Online, which didn’t give a comparable figure for the previous year.

T-Online, which is a Deutsche Telekom (DT) spinoff, saw its shares rise 4.5 percent on the German Neuer Markt. Tiscali shares gained 3 percent to 45.3 euros in Milan.

Another Net company getting a boost despite reporting a widening loss was U.K. sports Web site operator 365 Corp. (UK: TSF) Its shares jumped more than 6 percent after the company said loss after tax widened to 7.96 million pounds in the first quarter from 167,000 pounds a year ago. Revenue, however, jumped 117 percent to 10 million pounds.

365 Corp. cited a combination of organic growth and growth through acquisition. It’s now got 35 sites including five new ones such as Gardening365 and Formula 1 sites in Spanish, Italian and German. See story

Among other winners Thursday was security software maker Baltimore Technologies.

Baltimore (BALT )(UK: BLM ) shares leapt 52 pence, or 6.7 percent, to 831 pence after the company -- which has brushed aside speculation Microsoft (MSFT) might try to buy it out -- said it has signed a contract with Australian telecommunications leader Telstra to provide secure e-commerce systems for government services online.

Baltimore chief executive Fran Rooney said in an interview that the deal means the company will operate e-commerce systems for government-to-government and business-to-government transactions, such as procurement and electronic tendering.

Asia strategy

“This will give us the chance to secure other contracts and serve other parts of Asia,” Rooney said. “It’s the type of business we’ll do more and more of going forward.”

Rooney estimated the deal will be worth about $3 million in revenue at the outset, and should grow from there. Rooney said government contracts, which currently form about 20 percent company’s revenue, should ultimately comprise about a quarter of it. By far the biggest revenue source is banks, which currently represent about 70 percent of sales.

Meantime, software maker SAP (SAP )(DE: 716463) led the gainers on Germany’s high-tech-heavy Neuer Markt, tacking on over 8 percent to 279.87. The move followed share rises for the business management software maker’s U.S. peers. See story

The future is on the couch

If you’re not online yet, chances are you’re not likely to buy a PC and get connected any time soon. No, if you’ve waited this long, you’re probably kicked back on the couch right about now, waiting the Net to come to you, and preferably via the tube.

And that’s just what’s likely to happen, according to a Forrester Research study (FORR) that shows pay-TV will bring interactivity into 20 million European households this year. By 2005, fully half of the region’s households will have interactive digital TV.

“The growth of pay TV all over Europe will be the key driver for the increase of interactive digital TV,” Forrester says. The research firm separates the European techno-consumer population into four categories: boxed and wireds, leaning forwards, laid-back socializers and digital outcasts.

Key Internet drivers

The first group -- those who have both a set-top box and online access at home -- is the smallest. Laid-back socializers have pay-TV but no Net access at home. It’s these people plus the final group, the digital outcasts, who hold the greatest promise. Together they represent 50 percent of the population and will be the primary targets for digital-TV companies going forward, Forrester says.

What the firm believes these providers need to keep front-and-center as they plan their attack is simple: it’s e-mail.

Interactive digital TV “has the opportunity to become the major point of online access for the present population if iDTV companies adopt e-mail-friendly strategies. E-mail is the strongest driver for online access -- cited by 66 percent of online PC users as the reason they go online from home. For many people, PCs are just an expensive e-mail machine.”

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